Debt Notes: Inflation Over The Next 18 Months Is Very Doubtful, Unless...

There's been plenty of chit-chat the past few weeks about how President Trump's infrastructure initiative (we haven't had even a sniff of what this might be, besides the Mexican wall) and tax cuts are going to spur inflation, but there hasn't been any solid data upon which to rest the thesis.

Notwithstanding the minor upticks in CPI and PPI, there's little evidence to suggest that any kind of rampant inflation is on the immediate or even the future horizon, and there are plenty of good reasons for that.

Industry and international trade has been slow since the Great Recession of 2008-09 and our bouncy "recovery" hasn't made any real dent in the actual number of hours worked nationally. Sure, the BLS always tells us more and more jobs are being created and the unemployment figure is near historic lows, but they always fail to point out that people who have dropped out of the labor force aren't counted any more, so those figures are worth about what we all pay to read them... essentially, ummmm, nothing.

Now there is going to be inflation in some things, like it or not, and those things today are, in no particular order, health care, housing, autos, and higher education. Food prices in the USA are, and always have been, relatively stable. Notably, beef prices are far lower than they were just a few years ago.

From all indications, retailers closing up shops nationwide seems to be saying there isn't much demand for clothing. Household goods, ditto. So, where's the inflation coming from if demand is waning?

Simple answer. It's not. The Federal Reserve needs to run the narrative that inflation is upon us so they can jack up their abysmally-low federal funds rate. That's because their experiment in quantitative easing (printing money) and ZIRP (Zero Interest Rate Policy) have proven to be dismal failures. Of course, they will never admit to that, or to the fact that roughly $14 trillion has been wasted or funneled directly or indirectly to the top 1% wealthiest people.

Bottom line is that without demand for goods and services, there can be no price inflation, because, using the standard metric of inflation being more money chasing fewer goods, while there's certainly more money out there, there's also no shortage of goods and services. In fact, were the economy not in such a dreadful state, more people would be opening new businesses, simply because there would be money to be made and not much in the way of competition.

As it stands today, most of the needs of the average, below average, and above average US citizen are pretty easily met. Food and clothing are cheap, and that's two of the three essentials for survival. The third, housing, is largely dictated by geography, so, in big cities, it's expensive. Out in the boonies, not so much.

All of this brings us to the real question, where is all the money coming from?

Another simple answer: debt, though it's not exactly as cut-and-dried as many would believe. Outstanding credit card debt continues to rise, but it's just a shade below $1 trillion, and, as for home equity loans, many people, and many bankers, learned a lifetime lesson in the Global Financial Crisis (GFC). Where the real money is coming from is debt related to car loans and higher education, aka, student loans, both of which reached all-time highs in the 4th quarter of last year.

Strange as it may seem, both are at higher nominal levels than credit card debt, at $1.407 trillion for car loans and $1.11 trillion in student loans. It seems odd that there would be more in just these two categories than everything that could be purchased with credit cards, which is, actually, everything. You can even pay taxes or register your car with a credit card, so it's readily apparent that there's an oversized appetite for new cars and degrees from colleges.

It doesn't really make sense. The vehicles on the road today may be the latest with all the greatest gadgets and widgets, but they're not much better than cars made in the past fifteen years, many of which are still reliably on the road. as for a college education, that has to be a societal miscalculation, because a degree in liberal anti-establishment cultural studies or whatever isn't going to pay for itself any time soon. It's a conundrum, a mismatch, a MALINVESTMENT, of which there are many, everywhere.

That's not to mention that the median cost of a new home is at another all-time high, but, as mentioned earlier, that's largely a local issue, but it bears notice that the average monthly payment of principle and interest (PI) for that median home is over $1000 a month.

So, if you find yourself all bollixed up over high credit card balances with high interest rates, don't worry. There are plenty of college graduates living in nice, new homes driving new cars who are in much worse shape than you.

If you're one of those people, we're all sorry, and we're having a drink to your ultimate demise, telling the bartender, "charge it."

"Compounded interest is the 8th wonder of the world. Those who don't understand it, pay it, and those who understand it, earn it."

- Albert Einstein

At The Close, Tuesday, February 7, 2017:
Dow: 20,090.29, +37.87 (0.19%)
NASDAQ: 5,674.22, +10.66 (0.19%)
S&P 500: 2,293.08, +0.52 (0.02%)
NYSE Composite: 11,236.17, -27.94 (-0.25%)